Cisco Allegedly Sold Equipment to Russia in Violation of Sanctions

The networking vendor is denying allegations in a report that it used straw buyers and altered records to hide sales to Russian government agencies.

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Cisco Systems, which already has been under investigation by U.S. regulators for its dealings in Russia, is under scrutiny again for allegedly selling networking equipment to Russian government agencies in violation of U.S. sanctions instituted last year.

U.S. and European Union governments imposed sanctions against Russia in 2014 in response to that country's annexing of Crimea and its actions in eastern Ukraine. However, according to a BuzzFeed report May 20, Cisco officials knowingly set up ghost companies and falsified sales records to hide the fact that the company was selling gear to Russian entities, including the FSB, the successor to the notorious KGB.

The plot was run out of Cisco's Russia offices, according to the BuzzFeed report.

Cisco officials denied the allegations to BuzzFeed, and have issued statements to journalists and noted the company's "sterling 30-year record of compliance with export and sanctions rules around the world." The company is "in complete compliance with the U.S. and EU sanctions on Russia."

BuzzFeed, citing an anonymous source "with deep knowledge of Cisco's Moscow operations," reported that the company intended to use innocuous-sounding straw companies to hide the actual buyers of the equipment. The BuzzFeed journalists also said they had reviewed internal spreadsheets and emails that backed up the allegations. Cisco officials didn't dispute what was in the documents or emails, but acknowledged the customer names on some of the accounts were incorrect. However, they added that those were simple and harmless mistakes, the news site said.

Changes to those names were made to be more accurate, not to hide the actual buyers, the Cisco officials told BuzzFeed.

The allegations come as the United States and the European Union look to put economic pressure on Russia through sanctions that prohibit—among other things—"dual-use" technology that can be employed for both domestic and military reasons. Cisco's networking gear tends to fall into this category, according to the report.

Even as Cisco canceled $1.7 million worth of deals in Russia, following the imposition of sanctions, Cisco employees in the Moscow office were trying to find ways around the sanctions. That included trying to find legal ways to continue selling into Russia, despite a company vice president saying in an email that doing so could be a "risk to our brand and reputation."

The report claims that in one instance, Cisco killed a deal to sell network equipment to the FSB, Russia's security agency. The unnamed source said Cisco employees then indicated that similar deals were made with the Chamber of Commerce and the Industry of the Russian Federation, though the real buyer remained the FSB. It was part of a larger effort by Cisco employees to use the Chamber of Commerce as a straw buyer for other Russian agencies. Internal records showed the company made at least seven deals for switches, routers and servers worth more than $500,000 with the Chamber of Commerce, even though a chamber official in an email told BuzzFeed that her agency hadn't made any big deals for Cisco technology, and that it didn't do so on behalf of other entities.

The sanctions have had an impact on Cisco's business. During a May 13 conference call with analysts and journalists to talk about quarterly financial numbers, outgoing CEO John Chambers noted a 41 percent decline of revenue from its Russia operations.

The allegations are getting the attention of some in Washington, D.C. In a follow-up report, BuzzFeed wrote that Sen. John McCain, R-Ariz., chairman of the Senate Armed Services Committee and an advocate of harsher actions toward Russia, called the news site's findings "disturbing" and that the situation "deserves further investigation."

Cisco last year found itself under investigation by the U.S. Securities and Exchange Commission and Department of Justice over allegations that the company was bribing Russian officials in order to win business. The networking gear vendor also has garnered criticism for issues in other countries. Several years ago, it was discovered that an Iran mobile operator was able get products from Cisco, Hewlett-Packard and Oracle's Sun Microsystems business. Cisco also was accused of selling equipment to the Chinese government that officials then used in its efforts to put down the Falun Gong movement.